TaxTMI 
TaxTMI 
2019 (12) TMI 498
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....e, completed the assessment u/s 143(3) of the IT Act 26/11/2007. 2.1 The elaborate reasons of the AO to reopen the assessment u/s 147 are as under: "2.1The assessee company M/s Elem Investments Pvt. Ltd., is a company incorporated by the family members of the promoters of M/s Sat yam Computer services limited. The Chairman of M/s Satyam Computer Services Ltd Sri B. Ramalinga Raju had suo-moto made a confessional statement On 7th January, 2009, in his letter sent to the Board of Directors (with a copy marked to SEB) that the books of accounts of SCSL have been fudged for the last several years to manipulate the book results. He further confessed that the revenues and profits were manipulated by falsification of accounts for the last several years. The relevant extract of the confessional mail issued by Sri B. Ramalinga Raju is reproduced below: "It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: 1. The balance sheet carries as of September 30, 2008 a) Inflated (non-existent) cash and bank balance of Rs. 5,040 crore (as against Rs. 5361 crore reflected in the books) b) An accrued....
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..... V.S. Raju saying that he had forwarded the same e-mail to Shri B. Ramalinga Raju requesting him to give his response to the Audit committee at its next meeting which was to be held on 29'" December, 2008. He also told the Audit committee that he would make a presentation on this Issue in the next Board meeting to be held on December 29, 2008 which did not take place. Shri Krishna G. Palepu even after resigning had followed up the issue with the auditor and had asked the remaining directors to pursue the issue to bring it to a logical conclusion. Knowing the seriousness of the case and chances of getting caught, if the bank balances were verified by an independent investment banker, snr! B. Ramalinga Raju through his CFO, Shri V. srinivas asked shri G. Ramakrishna, the Finance Head, to ascertain the amount of falsification. And then followed the confessional mail of the then Chairman of M/s SCSL on 7" of January, 2009. 2.3 It is to be noted here that the above confessional statement by the then Chairman of M/s SCSL, was not in a way suo-moto but he was compelled to do so, as a consequence of revelation of some ugly facts about the falsified books of accounts, to other memb....
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....l and effective control over the investment & front companies of Sri Ramalinga Raju and his family members; c) that there were variations in the quantum of income and a assets/liabliities of SCSL and the investment and front companies as revealed in the confessional statements etc. which came to light in the investigations; were all not known to the Assessing Officer at the time of making the original assessments u/s 143(3). The fraudulent transactions revealed by Sri Ramalinga Raju, apparently will have a bearing on the financial affairs of the group companies and their consequent income and assets position in view of the complex and circuitous nature of transactions between the group entities. 2.2. In view of the above background, the AO observed that the assessment Is reopened under section 147 with the approval of the CIT (Central), Hyderabad and notice under section 148 was issued on 02.04.2009. Vide this office letter dated 21.07.2010 a detailed questionnaire calling for certain information was issued. In response to the said notices u/sec.143(2) of the I.T. Act, 1961, the assessee's Authorized Representative Sri B. Vijayaprasad, FCA attended on 23.09.2010 and the case....
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.... all that was required was a bonafide belief or a reason to believe about escapement of income. This belief and its bonafide were certainly there in the background. Thus, the issue of notice is therefore upheld. 5.1 As regards the addition of Rs. 12.59 crores on account of deemed dividend u/s 2(22)(e), the CIT(A) deleted the same. 5.2 As regards remaining additions on account of unexplained loans and advances of Rs. 20 crores and with regard to separation of interest income, he observed as under: "8.1.1 The back ground and the reasons for making the addition were narrated briefly in para 2.2.3. To recapitulate the forensic audit in the case of Satyam computers has come across credits of four high value cheques totalling Rs. 20 crores in the City Bank Account. The amount of Rs. 20 crores had come from three related companies namely- Elem Investments, Fincity Investments and the assessee appellant MIs High Grace Investments. However, the forensic report did not give the breakup of the receipt of 20 crores so that we do not really know how much was actually given by Elem/fincity/High Grace. There was also no attempt also to trace from the available cheque no. and transaction det....
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....5 crores as against Rs. 20 crores in the hands of M/s High Grace Investments pvt Ltd and an amount of Rs. 4.75 crores in the hands of M/s Elem Investments and Rs. 2.75 crores in the hands of Fincity Investments. 9.0 Findings regarding separation of interest income and assessing it as income from other sources and treating the income from trading in shares as speculation income. 9.1 Prima-facie, from the asst. order, it appears that the AO is treating the activity of trading in shares as speculative transaction. This is incorrect as by this definition of the AO, there cannot be any trading in shares by any assessee other than doing speculative transactions. The AO referred to Section 73 and explanation to section 28 in isolation. Section 43(5) defines speculation. It Is basically a contract settled otherwise by actual delivery or transfer of the commodity or scrips. In fact, even this definition has been liberalized w.e.f. AY 2006-07 to provide for hedging, jobbing or arbitrage transactions and the trading in derivatives if carried in a recognized stock exchange. It is the loss from such speculative transaction which is not allowed to be set off u/s 73. In fact, if there is no l....
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.... and executing any contract involving computer based information system, feasibility study, software development, systems and programming, data analysis and research and development and providing counselling, advisory or consultancy services. " Thus, earning of interest income is part of its business income and such income cannot be separately treated as income from other sources. The AO is therefore directed to compute the income accordingly, subject to quantification of actual advance given to MIs SCSL outside the books while giving effect to this appeal order." 6. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: "GROUNDS OF APPEAL 1. The Order of the Commissioner of Income Tax (Appeals)-12, Hyderabad [CIT(A)] in sustaining the assessment made u/s.143 r.w.147 of the IT Act, 1961 is unsustainable both on facts and in law. (i) The learned CIT(A) failed to note that the opinion formed by the Income Tax Officer and the recording of reasons before the issue of Notice u/s.148 had absolutely no nexus with the issue of the reopening of the assessment and framing of the assessment and therefore the issue of Notice u/s.....
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....s and therefore the Notice issued u/s.148 to reassess the Appellant's is to be struck down as invalid and much so the reassessment . 6.,.. Without prejudice to any of the aforesaid grounds the learned CIT(A) having found that no specific additions were made on the basis of reasons recorded ought to have held that the addition of Unexplained Advances at Rs. 20 Crores, deemed dividend at Rs. 12,41,03,588 and disallowance u/s 14-A at Rs. 42,92,125 could not be made and much less the recasting of computation of income statement and consideration of income from other sources separately and business income as income from speculation. The order of the CIT(A) at Paragraph 8.1.5 in giving a direction to assess a sum of RsA.75 Crores in the hands of the Appellant as unexplained loans and advances is totally contrary to the facts and evidences on record and is therefore unsustainable. 8. Without prejudice to any of the aforesaid grounds the Learned CIT(A) having found as the matter of fact that there was no specific finding that the appellant carried on speculative business and further having held that the computation made by the Assessing Officer was incorrect and the entire exerci....
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....application to the facts of the case of the assessee. 9. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. 9.1 As regards the issue of reopening of assessment raised in ground Nos. 1 to 5, on perusal of the reasons recorded by the AO, we noticed that the AO has issued notice within 4 years and AO has recorded detailed reasons and came to the conclusion that there is an escapement of income on the ground that falsification of books of account and also manipulation of accounts for the last several years as well as the statement given by the Chairman Shri Ramalinga Raju and material evidence, which are necessary to be considered, were not at all considered by the AO while passing the order u/s 143(3) of the Act. After going through the reasons recorded by the AO and material available on record, we find that the AO after recording the detailed reasons, reopened the assessment and, therefore, the question of change of opinion does not arise because the assessee has not expressed any opinion at all. Thus, we find that the AO has rightly reopened the assessment. So far as the judgement of the Hon'ble S....